What happens when you give people near-perfect information about the future (a proverbial “crystal ball”)? It turns out we still make bad decisions.
In November 2023, we ran an in-person, proctored experiment involving 118 young adults trained in finance. We called the experiment “The Crystal Ball Challenge.” We gave each participant $50 and the opportunity to grow that stake by trading in the S&P 500 index and 30-year US Treasury bonds with the information on the front page of the Wall Street Journal (WSJ) one day in advance, but with stock and bond price data blacked out. The game covered 15 days, one day for each year from 2008 to 2022. The players in the proctored experiment did not do very well, despite having the front page of the newspaper 36 hours ahead of time. About half of them lost money, and one in six actually went bust. The average payout was just $51.62 (a gain of just 3.2%), which is statistically indistinguishable from breaking even. The poor results were a product of: 1) not guessing the direction of stocks and bonds very well, and 2) poor trade-sizing.
Here is the full article – a good reminder that it is not enough to know the future… You still have to (consistently) make good decisions about it.
